Relay Advisors

Competitive Bidding Adds Value

Not surprisingly, clients question whether or not an unsolicited bid should be acted upon or if the client should become pro-active and engage in a more comprehensive and discreet auction process.

The benefits are obvious: two or more competing offers permit asset owners to have a much more informed assessment of what their private company or assets are worth, and competing offers deliver much needed negotiating leverage with the most desirable buyer.

Even if the seller is under time pressure, negotiations with the unsolicited bidder can continue while competing indications of interest are solicited.

There are very few company sale negotiations that do not stall at some point in the process. When they do stall, the seller needs options and negotiating leverage to get the best deal. Smart advisors can fast track the bidding process and competing offers can be solicited very quickly, often within two weeks and sometimes within a few days.

How much value do competing bids add to the process?

We summarized four of our most recent financings and company auctions in which multiple bids to either purchase or invest in the company were made. The company valuations were all less than $50 million of enterprise value. We assigned the high bid/valuation a value of 100 and compared the four processes in the graph below.

 

The upshot:

  • In three cases, the winning bid ranged between 27% and 67% higher than the lowest bid
  • In one case (TechCo.), the winning bid was 7.7 times as large as the lowest bid and 3.3 times larger than the second highest bid
  • In the case of MediaCo.2, the high auction bid that was 27% higher than the next bid, was used to shortlist one bidder with which a final price was negotiated - the final negotiated price was 62% higher than the low bid
  • There were dramatic variations in offers

The takeaway:

Competitive bidding will likely put millions of extra dollars into the bank for mid-cap company owners who are seeking financing or selling their companies.